Shanghai Surprise. Costco Is Overwhelmed

Costco just opened the doors of its first store in China. On the first day, huge crowds lined up for hours to get into the store. Once inside, they became part of a frenzied horde of shoppers fighting for anything from detergent to Birkin bags. The chaos was such that the store had to close early. At a time when other large retailers struggle to maintain a presence in China, Costco’s measured strategy and focus on the long game may pay off.

1. Compared to other large, international retailers, is Costco late entering the Chinese market? Why or why not?

Guidance: Large, international retailers such as Carrefour and Walmart entered the Chinese market in the mid-1990s. Despite partnering with local businesses, these retailers have had mixed success. In fact, Carrefour just sold 80% of its business in China. Costco is therefore entering the market relatively late because it has taken a careful and thoughtful approach.

2. What location factors were keys to Costco’s successful debut in Shanghai?

Guidance: Costco did not replicate its US business model overseas. Rather, it took the time to learn about Chinese consumers. It partnered with Alibaba to gain name recognition and legitimacy. This partnership gave Costco a lot of data on shopping habits and preferences before it decided to invest in a brick-and-mortar store. In addition to cultural differences and consumer preferences, Costco evaluated the market potential in Chinese big cities. The population in Shanghai is larger, wealthier (explanation for the Birkin bags!), and more international than it is in other cities.

3. What type of capacity expansion does Costco seem to favor in China?

Guidance: At the end of the article, it is mentioned that Costco can afford to expand fast and see what happens. However, it appears that Costco has learned from its competitors’ mistakes and is opting for a wait-and-see strategy that carries less risk.